Wednesday, February 21, 2018

The following passage from Meridian's recent 13D amendment should worry Cyanotech shareholders, and anyone else concerned about fairness and integrity in our public securities markets:"Davis went from 50% support in 2015, prior to Meridian’s first Schedule 13D filing, down to 47.7% in 2016 following the beginning of such filings, and then up to 50.2% in 2017. Each year, while the company’s performance and stock price was declining, the number of shareholder votes cast in support of Davis increased.

This seemed extremely odd to Meridian until it was remembered that Davis has a history of both (x) providing funds to his friends to be used to acquire and hold Cyanotech shares and (y) failing to report such activity as is required by Federal securities laws. Could Davis obtaining just barely enough shareholder voting support (50.2%) to ensure he cannot be voted off the board be just an amazing statistical coincidence?" Meridian SEC 13D/A 2/14/2018

1. Here's an interesting excerpt from from the 13D filing. Seems Davis took insider information to RSF and financed RSF's purchase. So, now we are looking at insider trading in addition to parking, by non other than the company's chairman of the board. This stinks:

"Even more interesting, Meridian learned that Davis had long concealed not only his close relationship with RSF, but that he had sourced and paid for every single share of Cyanotech held by RSF. Davis’ actions are important not only because they involved required disclosure concerning a public company, but because they were conducted coincident to and after Davis became chairman of the board of directors of the public company. This secrecy allowed RSF to avoid scrutiny when, on May 17, 2011, RSF acquired a 9.7% block of Cyanotech shares from VitaeLab—using funds transferred by Davis to RSF for that specific purpose. The date of the trade is important, as it was six weeks following the close of operations for Cyanotech’s fiscal fourth quarter, but five weeks prior to Cyanotech filing its Schedule 10-K annual report. During this period, Davis and other insiders knew the company’s year-end financial results, but the company’s stockholders did not (accordingly, most companies consider this a mandatory “closed window” trading period for all company insiders). By consulting the stock chart above, one can also see that the Davis-arranged and financed purchase by RSF was effected just a few months prior to Cyanotech’s stock beginning a steep rise that would quickly result in a near tripling in price. This is a good example for why most companies forbid trading by insiders during the closed window – as it is impossible to avoid questions as to what the insiders knew when trading in advance of such a significant price inflection."

2. Davis' cronies on the board also get some attention in the new 13D:

"Amazingly, Cyanotech’s other directors appear to have sided with Davis, with this resulting in the company paying egregious legal bills of more than $1 million attempting to defend Davis in the litigation brought to compel his compliance with Federal securities laws. Even while denying any misconduct, Davis and RSF began reforming their practices, with Davis filing his first required Schedule 13D on September 21, 2016 and RSF and Davis declaring the existence of a “group” on March 17, 2017. Coincident to the “group” filing, Cyanotech’s board members concluded there was a need to bolster the protections afforded by the company’s indemnification policy. On March 15, 2017, Cyanotech filed a Form 8-K with a new form of indemnification agreement for directors. The new agreement provides for, among other things, keeping secret any payments made under such agreement “Except as expressly required by the securities laws of the United States of America”. Apparently, Cyanotech’s board members believe it important to keep secret how much and on who’s behalf the company is spending the shareholders’ money to defend Davis and/or his board allies against claims of improper conduct."

Michael Arlen Davis' modus operandi for "parking" shares with RSF appears to have been/still is to sidestep the 20% private foundation ownership restriction defined by Section 4943 of the Internal Revenue Code.

Such 4943 "Excess Business Holdings" violations carry potentially very large penalties due the IRS in the form of excise taxes. I can imagine a guy like Davis possibly preferring his testicle slowly crushed over losing his Skywords money due to six or seven years worth of EBH penalties owed the IRS.

Every single share of Cyanotech stock reported as held by RSF was paid for and placed into RSF's hands by Michael Arlen Davis. That the stock resides in a Donor Advised Fund with a highfalutin sounding name means it should be obvious to all interested parties that Davis controls the stock. Does anyone actually believe that RSF is the true beneficial owner of the Cyan stock in the "Filigreen Endowment of the Living Capital Fund for the Benefit of Ginungagap"? The most famous example of enforcement of Federal securities laws against "parking" came in the case of Ivan Boesky.

Ivan Boesky went to Jail when he was caught "parking" securities."People familiar with the case said yesterday that the investigation was tied to a case last year in which Michael Davidoff, former head trader at Seemala, pleaded guilty to securities fraud. In his plea, Mr. Davidoff said he had reached a ''secret agreement'' with officials at Seligmann Harris to ''park'' stocks. Stock parking involves secretly transferring securities to another entity to evade restrictions on holdings." New York Times, 1998READ MORE: Click on the image below:

Monday, February 5, 2018

Review of VitaeLab's sale of their 9.7% Cyanotech stake suggests that Chairman Davis may have violated SEC Insider Trading restrictions when he directed and funded RSF's purchase of the shares on May 17, 2011